Good Till Cancelled (GTC) Orders: A Deep Dive

Good Till Cancelled (GTC) Orders: A Deep Dive

Definition:

A Good Till Cancelled (GTC) order is a type of trading order that remains active in the market until it is either executed (filled) or manually cancelled by the trader.

Key Takeaway: A GTC order allows traders to set a buy or sell order at a specific price and have it automatically executed when that price is reached, without needing to constantly monitor the market.

Mechanics

Think of a GTC order like setting an alarm for a specific price in the market. You tell your broker, “When the price of Bitcoin reaches $60,000, buy X amount of Bitcoin.” The order then sits with your broker, waiting for that price trigger. If the price never reaches $60,000, the order stays active. If the price does reach $60,000, your order is executed, and you buy the Bitcoin.

Here's a step-by-step breakdown of how GTC orders work:

1. Order Placement: You, the trader, decide you want to buy (or sell) a certain asset at a specific price. You place a GTC order with your broker, specifying the asset, the quantity, and the price.
2. Order Storage: The broker receives your order and enters it into their system. It's then held in the order book, waiting to be matched.
3. Market Monitoring: The broker’s system constantly monitors the market, tracking the price of the asset you want to trade.
4. Price Trigger: When the market price reaches your specified price (the trigger price), the GTC order is activated.
5. Order Execution: The broker attempts to execute your order. This means finding a counterparty (another trader) willing to sell (if you’re buying) or buy (if you’re selling) at your specified price.
6. Order Fulfillment/Cancellation:
   • Execution: If a match is found, the order is filled, and the trade is executed. The GTC order is then removed from the system.
   • Cancellation: If the market price never reaches your specified price, the order remains active. You can cancel the order at any time, or the broker might automatically cancel it after a certain period (e.g., 30, 60, or 90 days), depending on the broker's policy. GTC orders don't last forever.

Trading Relevance

GTC orders are particularly useful in various trading scenarios:

• Setting Entry Points: Traders use GTC orders to enter a position at a desired price. For example, if you believe Bitcoin will retrace to $58,000, you can set a GTC buy order at that price. This ensures you automatically buy when the market dips.
• Taking Profits: Similarly, GTC orders are used to exit a position. If you own Bitcoin and want to sell at $65,000, you set a GTC sell order. When the price hits $65,000, the order is automatically executed, securing your profits.
• Managing Risk: GTC orders can be used as stop-loss orders. If you hold an asset and want to limit your losses, you can set a GTC sell order below the current market price. This automatically sells your asset if the price falls to that level.
• Time Savings: GTC orders free up time. You don't need to constantly monitor the market. Instead, you set your orders and let the system handle the execution.

Risks

While GTC orders are powerful, traders must be aware of the associated risks:

• Market Volatility: Markets can move rapidly. A GTC order might be executed at a price you no longer desire, especially in volatile markets. Market conditions can change quickly.
• Slippage: Slippage is the difference between the expected price of a trade and the price at which the trade is executed. In volatile markets, your GTC order might be filled at a price less favorable than anticipated.
• Expiration Policies: Although GTC orders are designed to remain active, brokers often have expiration policies, typically 30, 60, or 90 days. If your order isn't filled within this period, it will be automatically canceled.
• Unintended Execution: Ensure that the price you select is appropriate for your trading strategy. You don't want to get into a trade you wouldn't otherwise make.
• System Failures: Although rare, system glitches or broker outages can interfere with order execution. Always have a backup plan.

History/Examples

GTC orders are a long-standing feature in traditional financial markets. Their application has seamlessly transitioned into the cryptocurrency space.

• Early Stock Markets: Before the advent of electronic trading, GTC orders were crucial. Traders would leave instructions with their brokers, and the brokers would manually execute these orders when the market conditions were met.
• Bitcoin in 2013: Imagine you wanted to buy Bitcoin when it dipped to $200. You could have placed a GTC buy order. If the price did indeed hit $200, your order would be executed. If it never reached $200, the order would remain open (until you cancelled it).
• Altcoin Trading: GTC orders are commonly used in altcoin trading. Many traders use them to set buy orders below the current price, anticipating a price correction, or to set sell orders at profit targets.
• Modern Exchanges: Major cryptocurrency exchanges like Binance, Coinbase, and Kraken all support GTC orders, making them accessible to a wide range of traders.
• Automated Trading Systems: GTC orders form the basis of many automated trading strategies. Traders use them in conjunction with other order types to create complex trading algorithms.